Blockchain Technology is Disrupting Payment Processes in the Agricultural Sector

Blockchain technology is a decentralized digital ledger that keeps immutable records of transactions. It maintains a network of computers working together as well as independently, to keep and verify records in such a way that once a record has been written and accepted by all the computers in the network, it cannot be altered. It therefore provides a means to record, certify, and transfer assets without needing to rely on a bank, or other middlemen.

In Africa, the agricultural market – despite its $330billion size in 2015 and projected growth to $1Trillion by 2030 – is not only unorganized but also has a complex value chain. Blockchain technology can provide stakeholders with a system that organizes and digitizes this value chain as well as provides access to potential investors in a central database. It can serve as a real-time management system for supply chain transactions and financing to provide information (on the state of farms, inventory, contracts etc.) and maintain an identity database of partners (including farmers, insurance companies, financial institutions, government and development partners).

According to the World Bank, the demand for food is expected to increase by 70% by 2050; as the global population continues to grow exponentially and the demand for higher value agricultural products in developing countries continues to increase. This forecast earmarks at least $80 billion annual investments to address this. Hence, an increased investment in the agricultural industry is especially needed to prevent a global food crisis.

Innovation around access to finance for rural farmers is an essential starting point; it has great potential to improve farming outputs. In Africa, rural farmers – mostly without access to financial services – dominate the agriculture value chain. The challenges of setting up traditional financial service institutions in rural communities prevent them from accessing these services; causing them to go through lengthy payment cycles and/or seeking help from middlemen.

For a potential agriculture investor, it is difficult to carry out due diligence checks in aspects of agriculture such as produce off take, processing and marketing by providing the needed financing either as a loan or grant to the various actors starting from the farmer. This is due to several factors including lack of access, inability to monitor/evaluate and ensure best practices, complex supply chains, and a lack of leverage in retrieving the returns from the investments.

Leveraging digital technology is a proven viable way to solve these problems. Players in the agricultural sector have already begun to exploit this trend. AgriDigital, an Australian platform, allows all the players across the agricultural supply chain to operate and interact on one platform for the transaction of their commodities using blockchain. Similarly, TE-Food offers Farm-to-table fresh food traceability for emerging markets through tracking systems built on blockchain.

In Nigeria, Agrikore, (powered by Cellulant) leverages on the capability of blockchain to increase access to financial services by creating smart contracts which present a mechanism to ensure that payment for a particular service is done after the service provider has met the initial terms of agreement. In the way Uber organized disparate single drivers into an organized ecosystem; Agrikore does the same for agriculture. By organizing players in the ecosystem, it eases the flow of financing into the system. Agrikore also incentivizes production and other value-added services by ensuring that resources are available to farmers on time. It enables people in the value chain to create and capture economic value sustainability because the economic activities are now visible in one transparent ecosystem.

This system also solves 3 main issues preventing Africa and its constituting countries from being able to feed themselves and use agriculture – the sector where African has a competitive advantage (weather, arable land, water) – to compete with the rest of the world. These issues are: access to markets which arises from the asymmetry of information that make inputs and produce trade, access to credit and inclusion in Digital Financial services and the simplification of the market entry process for investors.

Other capabilities of the platform include: repayment of agro-loans, produce delivery, storage contracts, warehousing, and grants. Agrikore’s blockchain technology also provides aggregated information on the agriculture supply chain in Africa; bypassing middlemen who may charge high fees to connect investors with farmers. It maintains an infrastructure that allows strangers to transact directly.

A major part of payments in the agriculture sector is international remittances. Through blockchain, robust platforms can be built to facilitate payments in a faster and cheaper way and most importantly connect rural farmers to a network of potential clients.

As the public and private sectors continue to appreciate the benefits of blockchain technology, the closer this disruption will be in addressing wider issues especially among rural farmers in emerging economies.